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  • Dennis#MD
    Dennis#MD

    5 Effective Ways to Fund a Startup

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    If you have a great business idea, how do you raise money to get it off the ground? Lack of funding is always one of the reasons why many great business ideas fail to see the light of day.

    Don’t let your idea be a statistic. There are several simple fundraising methods any startup founder can take advantage of even when they don’t have any experience in finance.

    Here are some of the ways through which a startup founder can raise money to fund their business:

    Crowdfunding

    The internet has changed pretty much every sector of the economy. One of areas the internet has changed is how business owners raise money to fund their ideas and projects.

    Crowdfunding is an alternative finance avenue – often powered by the internet – where a venture raises money from a lot of people. The amounts contributed by individuals are small but the sum total is always significant since a lot of people can get involved in a project that manages to attract enough interest.

    There are dedicated sites where entrepreneurs can ask people to crowdfund their ideas, projects, or ventures. Some of the notable crowdfunding sites include:

    • Kickstarter
    • Indiegogo
    • RocketHub
    • Razoo
    • GoFundMe
    • Crowdrise
    • Sellaband
    • PledgeMusic.

    Typically, a crowdfunding process involves an entrepreneur setting up a project on a crowdfunding site and allowing anyone who wants to be part of the project to contribute. If it’s a cool project, the incentive to contribute can be as simple as people paying for their product before it’s manufactured with the entrepreneur promising to send them their copy after the product has been manufactured.

    In such a scenario, the contributors will be basically funding the initial production cost. If you price your product properly and factor in the profit margin in the contribution amounts you request, you will have some money left after making the first batch of shipments and so be able to comfortably fund subsequent production.

    Merchant Cash Advances

    If you run an ecommerce store, you should definitely consider using a platform that gives merchants cash advances. One of the ecommerce platforms that gives its users cash advances is Shopify. It goes without saying that you have to develop a consistent track record of sales to be able to take advantage of their merchant cash advance program.

    This method of funding is good if you want to expand your startup. To get their money back, the ecommerce platform will take a small cut of every sale you make till the advance is repaid in full. The cut is always a fixed percentage. It is a good deal since you don’t have to commit to a specific installment amount every month. You will only make remittances when you make a sale. If you don’t make a sale on any given day, you will remit nothing.

    Secure a Loan

    Getting a bank loan is one of the fastest ways you can secure the monwt to fund a new business. Banks usually don’t lend out money to fund new businesses so you will probably be securing a personal loan. If you’ve been in operation for some time, however, you will have more wiggle room and can actually land a business loan.

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    If you want to get a loan fast, you should consider getting a title loan. Title loan institutions such as tfctitleloans.com can process loans within 48 hours if you have all the documents needed. The conditions are often favorable and will probably include zero prepayment penalties, ability to keep and use the security for the duration of the loan term, and customized loan terms that take your financial position into account.

    If your credit score can’t secure you a bank loan, you should consider joining a microfinance institution and building a reputation as a consistent saver. You can then leverage the reputation to take out a loan with them.

    Small Business Administration’s Programs

    Not many people are aware of or take advantage of the grants and funding opportunities available to small businesses through the SBA. You can get a loan for a brand new startup with the SBA if you can put forward a third of the required capital and secure the rest using personal or business assets. The loans are usually administered by local banks. You can learn about the options available to you by just paying a visit to the bank near you.

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    Further, the SBA also gives grants that entrepreneurs don’t have to pay back. This often applies to groups such as minorities, women, youth, and veterans. Visit your local SBA chapter to learn about the grants you can apply for.

    Angel Investment or Venture Capital

    If you are comfortable giving up equity to an outside investor, you should consider approaching an angel investor or a venture capital fund. Angel investors are accredited individuals while VC funds are firms.

    In the early stages of a startup, you will have more luck approaching angel investors. Venture capital funds tend to go for startups with high-growth potential or those that have a great track record.

    The emergence of equity crowdfunding now makes it easy to find angel investors. There are dedicated online angel networks and angel groups where you can pitch your idea and interested angel investors in those groups will pool funds together to fund your idea or business.

    Edited by Dennis#MD

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